Ed Department strikes $6B settlement with students who attended for-profits

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Dive Brief: 

  • The U.S. Department of Education agreed Wednesday to automatically forgive the federal student loans of roughly 200,000 borrowers to settle a class-action lawsuit alleging that the agency delayed granting relief to students who were defrauded by their colleges. 
  • Under the terms of the Sweet v. Cardona settlement, the Ed Department will automatically forgive about $6 billion in student loans under the borrower defense to repayment regulation, which allows students to have their loans forgiven if their colleges misled them. The U.S. District Court for the Northern District of California will review the proposed settlement in July, according to the Project on Predatory Student Lending, one of the organizations providing legal representation for the students.
  • Students will be eligible to receive debt relief if they filed a borrower defense claim against one of the 150-plus colleges listed in the settlement agreement — including large for-profit universities such as Capella and Walden. 

Dive Insight: 

The settlement agreement could bring to a close a yearslong legal dispute over hundreds of thousands of borrower defense claims. The list of institutions whose borrower defense claimants will receive automatic relief is wide-ranging — it includes currently operating colleges, such as Purdue University Global and Grand Canyon University, as well as shuttered for-profit chains like ITT Technical Institute and Vatterott Educational Centers. 

The deal has been praised by student advocacy groups. 

The prospect of full student loan debt discharges in a final settlement to the Sweet case is welcome — and overdue — news for more than 200,000 borrowers who deserve relief under federal law,” Sameer Gadkaree, president of The Institute for College Access & Success, said in a statement Thursday.

The Ed Department determined that “attendance at one of these schools justifies presumptive relief” because of strong signs of “substantial misconduct by listed schools, whether credibly alleged or in some instances proven,” according to the settlement. The listed colleges also have high rates of borrower defense applications, it says. 

Along with loan forgiveness, students will be refunded loan payments they’ve made, and their debts will be removed from their credit reports. 

Roughly 68,000 students filed a borrower defense application but attended a college not listed in the settlement. The Ed Department will issue a decision on their claims within 30 months of the settlement agreement being finalized. If they don’t receive a decision by then, their loans will automatically be discharged. 

Education Secretary Miguel Cardona heralded the settlement in a statement Wednesday. 

Since day one, the Biden-Harris Administration has worked to address longstanding issues relating to the borrower defense process,” he said. “We are pleased to have worked with plaintiffs to reach an agreement that will deliver billions of dollars of automatic relief to approximately 200,000 borrowers and that we believe will resolve plaintiffs’ claims in a manner that is fair and equitable for all parties.” 

The Ed Department did not admit to any wrongdoing under the agreement. 

Career Education Colleges and Universities, which lobbies on behalf of for-profit institutions, panned the settlement Tuesday. 

“We are deeply concerned that in its haste to respond to outside political pressure, the U.S. Department of Education is attempting to approve wide swaths of claims without regard to individual merit,” CECU President and CEO Jason Altmire said in a statement. “The Department has an obligation to take a more measured approach to determine if each student has been financially harmed based on an unlawful act. The Court should look carefully at the settlement agreement to ensure it is fair for all parties involved.”

The lawsuit was brought in 2019 by a group of students seeking borrower defense to repayment. They alleged that the Trump administration was mishandling their applications by delaying their processing and issuing blanket denials. 

That year, then-Education Secretary Betsy DeVos tightened the rules around borrower defense. The new rule, which affects students applying for borrower defense from July 2020 onward,  requires borrowers to prove that their college knowingly misled them and that those deceptions harmed them financially. During her tenure, the lawsuit’s class members had a 94.4% denial rate for their borrower defense applications, according to court documents

DeVos’ stricter borrower defense rule is still in effect today. The Biden administration plans to release its own version of the rule this month. 

The settlement comes about three weeks after the Biden administration announced it was automatically granting borrower defense applications to 560,000 former students of Corinthian Colleges, a defunct for-profit chain. The discharge totaled $5.8 billion, which the agency said was the largest in its history.

Earlier this year, the department announced the cancellation of $415 million in debt for almost 16,000 students who attended several for-profit colleges including, notably, the still-operating DeVry University. DeVry marked the first instance of borrower defense to repayment relief for students who attended an institution that remains open and continues to access federal financial aid funding.

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